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5. Keep What You Earn Act: Legislative Outline

Model Legislative Outline, not final bill text. It needs drafting by legislative counsel. Version 2.1, revised November 4, 2026.

This Act may be cited as the “Keep What You Earn Act”.

Purpose

To let working people, seniors, and families keep more of what they earn.

Principal Requirements

Sec. 4. No income tax on Social Security

• Repeals the taxation of Social Security benefits (26 U.S.C. 86).
• The Social Security and Medicare trust funds receive general fund transfers equal to the revenue they lose.

Sec. 5. No income tax on tips and overtime

• Makes the tips and overtime deductions in Public Law 119-21 permanent and removes their dollar caps and income phase-outs.

Sec. 6. No income tax on the first $75,000 of earned income

• Excludes from gross income the first $75,000 of earned income ($150,000 for a joint return), indexed to inflation.
• The exclusion does not stack: the standard deduction (26 U.S.C. 63) is reduced, but not below zero, by the amount excluded.
• Every earner excludes the first $75,000 or $150,000, so there is no cliff.

Sec. 7. End the marriage penalty

• Every joint-return bracket, deduction, phase-out, and threshold is exactly twice the single amount.
• Amends 26 U.S.C. 1 and conforming sections.

Sec. 8. $10,000 child tax credit

• Raises the credit under 26 U.S.C. 24 to $10,000 per qualifying child, indexed to inflation.
• Refundable up to the family’s payroll-tax liability (the employee share of Social Security and Medicare taxes and the self-employment tax).
• Requires a Social Security number for the child and the taxpayer, as under current law.

Definitions and Eligibility

• “Earned income”: wages, salaries, tips, and net earnings from self-employment (26 U.S.C. 32(c)(2)).
• “Marriage penalty”: any provision under which a married couple filing jointly owes more than two single filers with the same incomes.

Existing Law Affected

• Internal Revenue Code secs. 1, 24, 63, 86, and the tips and overtime provisions of Public Law 119-21
• Social Security Act trust fund provisions (42 U.S.C. 401)

Implementation Timeline

• Taxable years beginning after December 31 of the year of enactment.

Responsible Agencies

Treasury and the Internal Revenue Service; Social Security Administration (trust fund transfers).

Enforcement and Appeals

The IRS administers this Act under the existing Internal Revenue Code procedures and Tax Court review.

Fiscal Implications

Large revenue reduction. Published estimates exist for parts: about $1.4 trillion over 2025–2034 for ending tax on Social Security benefits (Tax Foundation); the capped, temporary tips and overtime deductions in current law were estimated at about $32 billion and $90 billion over fiscal years 2025–2034 (Joint Committee on Taxation), and a permanent, uncapped version would cost more. No official estimate yet for the $75,000 exclusion or the $10,000 credit. See the fiscal appendix.

Illustrations

• Single worker, $60,000 in wages, no children: all wages are excluded, so federal income tax is $0. Payroll tax (7.65%, about $4,590) still applies.
• Married couple, $150,000 in wages, two children: all wages are excluded, so income tax is $0. The $20,000 child credit is refundable up to their payroll tax, about $11,475.
• Illustrations ignore other income, state taxes, and inflation indexing.

See the fiscal appendix for cited estimates.

Legislative Instrument Required

Bill (H.R.) with a Senate companion bill (S.). A revenue measure, so it must start in the House (Article I, Section 7).

Severability: if any provision, or its application to any person or circumstance, is held invalid, the rest of the measure and its other applications are not affected.

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